COMMITTED TO
IMPROVING THE STATE
OF THE WORLD
The Next Billions:
Unleashing Business Potential in
Untapped Markets
Prepared in collaboration with The Boston Consulting Group
World Economic Forum
January 2009
The views expressed in this publication do not necessarily
reflect those of the World Economic Forum.
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REF: 150109
Contents
Preface
4
Executive Summary
5
Chapter 1 – New Potential: Improving Lives and Opening Markets
8
Chapter 2 – New Markets: Opportunities and Challenges
10
Chapter 3 – New Perspectives: Challenging Deep-seated Beliefs
14
3.1 Affording Access Rather than Ownership
14
3.2 Monetizing Hidden Assets
16
3.3 Bridging the Gap in Public Goods through Private Enterprise
18
3.4 Scaling Out versus Scaling Up
19
3.5 Governing through Influence Rather than Authority
21
Chapter 4 – New Approaches: Design Principles for Success
24
4.1 Create Life-enhancing Offerings
24
4.2 Reconfigure the Product Supply Chain
26
4.3 Educate through Marketing and Communication
28
4.4 Collaborate to form Non-traditional Partnerships
29
4.5 Unshackle the Organization to Help New Business Models Succeed
32
Chapter 5 – New Alliances: Priorities for Stakeholders
33
Terminology
36
References
37
Appendix 1: Methodology for Estimating Populations and Incomes
39
Appendix 2: Case Study Selection Process
41
Appendix 3 – List of Case Studies Cited
42
Preface
The World Economic Forum is pleased to present
this report on innovative approaches through which
companies across a broad range of industries can
tap the economic potential of the “base of the
pyramid” (BOP), generating sustainable economic
growth while improving the livelihoods of the poor.
As part of its mission to facilitate “entrepreneurship
in the global public interest,” the Forum serves as a
platform for leaders to define and catalyse businessled and multi-stakeholder solutions to foster
sustainable economic development. Over the past
four years, the Consumer Industries community of
the Forum has championed a series of activities,
focused on improving food production and incomes
in poor communities. The group has focused on
commercially viable business models that offer vital
products, services and business linkages relevant to
the food value chain – not only in the agriculture,
food and beverage sectors but in retail and consumer,
finance, telecom, energy and logistics as well.
This report was undertaken with support from the
Bill & Melinda Gates Foundation, with the goal of
defining commercially viable business strategies that
can help reduce poverty and hunger. It is based on
a broad research survey plus three cross-industry,
multi-stakeholder roundtables conducted in Latin
America, Africa and Asia during 2008. The research
survey included review of 60 reports and collection
of 200 case studies from primary and secondary
sources. The roundtables provided ground-level
insights from practitioners – ranging from multinational
and regional companies to social entrepreneurs –
who are pioneering these business models on the
ground. The project team also drew on the prior
work of numerous thought leaders in this arena.
This report presents a set of new insights and design
principles which can help companies tap the
economic potential of BOP markets in ways that
serve both commercial and societal goals. It offers an
array of examples illustrating successful approaches;
and recommends actions both companies and other
stakeholders can take to successfully develop and
broaden such initiatives. The report is being published
jointly with a companion volume, “The Next Billions:
Business Strategies to Enhance Food Value Chains
and Empower the Poor,” applying these concepts to
the food value chain, which comprises the largest
share of BOP income and spending.
This project was undertaken by the World Economic
Forum in partnership with The Boston Consulting
Group. Lisa Dreier led the initiative at the Forum
together with Jennifer Baarn and Pial Islam, with
input from Helena Leurent, Sarita Nayyar and Rick
Samans. We thank The Boston Consulting Group for
its work, led by Arvind Subramanian, Anand
Raghuraman and Nimisha Jain with Neetu Vasanta,
S. Rajagopal and Marije van Mens.
The report reflects the input, discussion and review of
a number of Forum partners and experts, to whom we
are greatly indebted. Reviewers of this report include:
Andrew Aulisi of the World Resources Institute (WRI),
Susan Morgan of BT, Richard Rogers of the Bill &
Melinda Gates Foundation, Willa Shalit of Fair Winds
Trading Inc. in collaboration with Macy’s, Chris Shea of
General Mills, and David Spielman of the International
Food Policy Research Institute (IFPRI). Jane Nelson
of Harvard University, Francisco Noguera of the World
Resources Institute and Mirjam Schoening of the Schwab
Foundation for Social Entrepreneurship also served
as independent reviewers of the case study selections.
The business strategies outlined in this report form part
of a rapidly-evolving frontier of BOP business initiatives
worldwide. Undertaken by global and local companies
– often in partnership with other organizations – they
represent the highly dynamic business innovation
being applied in fast-growing BOP markets.
The economic and food crises of 2008 have
underscored the need for sustainable models for
economic growth which strengthen the livelihoods of
the poorest. The strategies outlined in this report
offer a pathway for business to develop such
models, in partnership with other stakeholders.
Richard Samans
Managing Director
World Economic Forum
Sarita Nayyar
Senior Director, Consumer Industries
World Economic Forum
4|
Executive Summary
Companies around the world are increasing their
engagement in emerging markets, yet many remain
focused on the high-income populations in those
countries. In fact, the world’s low-income population
(the so-called “base of the pyramid”, or BOP)
represents considerable productive and
entrepreneurial potential, as well as untapped
demand for products and services. Yet, challenges
in the business operating environment often limit the
success of standard business models in the BOP
market. Companies that manage to overcome these
challenges can generate both commercial benefit
and sustainable livelihoods for the poor.
ways to overcome constraints and tap opportunities
can gain insights, market share and customer or
supplier loyalty, and will secure a strong position in
this growing market.
Successful business models can substantally
improve BOP incomes and livelihoods, improving
access to essential goods and services while
catalyzing economic multipliers and reducing
inequality. Therefore, the BOP market offers a
meeting ground where corporate economic benefit
and social impact can be achieved together.
Understanding the BOP
Success requires creative, new approaches to
sourcing and distribution, product design and
partnerships. This report presents an overview of the
opportunity at the BOP, outlines strategies that a
number of companies have adopted to generate
both commercial and social benefit in this market,
and suggests design principles that companies and
partners can use when devising their own approaches.
The Opportunity
Globally, 3.7 billion people are largely excluded from
formal markets. This group, earning US$ 8a per day
or less, comprises the “base of the pyramid” (BOP)
in terms of income levels. With an annual income of
US$ 2.3 trillion a year that has grown at 8% in
recent years, this market represents a substantial
growth opportunity.
While it is highly diversified, much of the BOP
represents a fast-growing consumer market, an
underutilized productive sector, and a source of
untapped entrepreneurial energy. Engaging the “next
billions” at the BOP as producers, consumers and
entrepreneurs is therefore key to both reducing
poverty and driving broader economic growth.
Historically, challenges in the operating environment
have deterred companies from engaging in this
market. As a result, people at the BOP remain
beneath the radar of most conventional business
models, often forced to rely on informal markets and
substandard products. Companies that find new
a
The US$ 8/day income threshold is in Purchasing Power
Parity (PPP) dollars, and was defined by the World
Resources Institute report, The Next 4 Billions.
Within the BOP group, income levels vary. About 1.1
billion earn US$ 2-8 per day and – while still
considered poor – are beginning to generate significant
discretionary income. In the mid-range, 1.6 billion
earn between US$ 1-2 per day, spending largely on
essentials. One billion people live in extreme poverty,
earning under US$ 1 per day, and often struggle to
meet basic needs (all figures in PPP$). People at
these income levels are found worldwide, largely in
Asia, Africa and Latin America, with 60% of the BOP
concentrated in India and China.
The first step for companies seeking to engage the
next billions as producers and consumers is to
overcome traditional stereotypes and mindsets
about who they are and what they can accomplish.
Although their needs are diverse and vary by culture,
people at the BOP share several characteristics that
companies need to understand to do business with
them effectively:
• Financial constraints: Low and fluctuating
incomes, and limited access to credit or
insurance, drive the BOP to be smart shoppers
and risk-averse investors.
• Life challenges: Domestic constraints, difficult
living conditions, and high prices for often
substandard products or services are among the
daily challenges at the BOP.
• New Customers: BOP consumers lack
information on many commercial products, and
therefore rely more heavily on trusted sources or
demonstrations to make buying decisions.
• Quality Standards: BOP consumers and workers
conduct their lives with dignity and demand both
respect and quality from service providers and
employers.
|5
Adopting New Perspectives
Once a company understands the BOP market on
its own terms, it must look beyond its traditional
business approaches and – in collaboration with
governments and local organizations – develop
innovative new models suited to BOP needs and
capabilities. Companies can reframe the problems
encountered in BOP markets, finding ways to
leverage them into business opportunities. Such
new perspectives include the following:
Affording access rather than ownership:
Companies should consider how they can shift from
a “selling” mode to one that deploys products for
use without requiring ownership. The focus should
be on the community rather than individuals.
Monetizing hidden assets: BOP communities
contain “hidden assets” such as undocumented
capital, community and personal resources, and
underutilized assets. Companies can seek out such
assets within communities and work to leverage
their value.
Bridging the gap in public goods through
private enterprise: To overcome both hard and
soft infrastructure constraints, businesses can
partner with other organizations to implement
innovative solutions that benefit everyone.
Scaling out versus scaling up: Standard
production models are often ineffective at the BOP.
Centralized, large-scale production can increase
costs and fail to meet localized needs in BOP
markets. Instead, businesses should combine
scaling out with scaling up. Scaling out involves
leveraging local assets – manufacturing,
entrepreneurs, producers – to adapt and replicate
business models according to local conditions.
Governing through influence rather than
authority: Flexibility and decentralization are crucial
for adapting to local changes and controlling costs.
Companies can reduce the need for costly
monitoring by aligning the interests of the employees
with those of the company.
6|
Design Principles for Successful
Business Models
Companies can translate new perspectives on the
BOP into new business models. In seeking to
develop effective business models, companies can
draw upon five design principles outlined below.
Create life-enhancing offerings: Develop offerings
that improve the livelihoods of the BOP by pricing for
their budgets, tailoring products to address local
constraints, and developing environmentally
sustainable approaches.
Reconfigure the product supply chain: Create a
cost-efficient distribution system by sourcing from
local producers, leveraging existing local distribution
channels, and finding creative ways to overcome
infrastructure constraints.
Educate through marketing communication:
Design marketing programs that contain educational
as well as persuasive messages about product
benefits. Leverage trusted people, institutions and
brands to build consumer loyalty.
Collaborate in non-traditional partnerships: To
lower costs and broaden distribution, partner with
local producers and consumers, as well as other
companies. Invest in local talent and create
incentives that encourage self-governance.
Unshackle the organization: Design corporate
organizational structures – including metrics,
incentives and accountability systems – to support,
measure and reward long-term success in business
initiatives targeting the BOP
New Alliances: Priorities for
Stakeholders
The innovative approaches described in this report
can form the foundation of new growth opportunities
for companies that are bold enough to experiment.
However, success in BOP markets often requires
collaboration with other companies or stakeholders.
Such partners bring key capacities to enable or
support BOP business models through
complementary action.
• Governments can strengthen policy and tax
incentives for BOP business engagement.
Examples in the telecom and agriculture sectors
have shown how policy reform can catalyze
increased local investment and service provision.
• Companies can collaborate across industries and
among stakeholders to leverage shared resources
and capabilities. Partnering with NGOs, donors
and governments can combine organizational
capacities in ways that benefit all.
• All stakeholders can work to identify viable
business models, monitor and evaluate their
impacts, and share learnings to accelerate
momentum. Raising the visibility of successful
BOP business initiatives can catalyze learning and
broader adoption by companies.
Over the next decade, even in the face of global
economic challenges, the base of the pyramid is
likely to be a source of continued economic growth.
Companies can establish a footprint in this growing
market, while also investing in the communities that
will lead and drive its expansion. The net result will
substantially improve livelihoods, while generating
economic growth for companies and communities
alike.
|7
Chapter 1 – New Potential: Improving Lives
and Opening Markets
• Nearly 3.7 billion people across emerging economies occupy the base of the pyramid (BOP); they earn
less than US$ 8 a day (2002 PPP$) and remain largely excluded from formal markets
• Within this group is a sizable segment of potential consumers, producers and entrepreneurs who could be
engaged by companies profitably with new business models – they are the “Next Billions”
• The first step for companies seeking to engage the poor as producers and consumers will be to overcome
traditional stereotypes and mindsets about who they are and what they can accomplish
• Companies that are first to overcome the inherent challenges of this segment with sustainable business
models will gain a competitive advantage, while improving the lives and livelihoods of this large population
Nearly 3.7 billion people – more than half the world’s
population – live on less than US$ 8b a day[1-4]and have
been largely excluded from formal markets. They are
often referred to as the “Base of the Pyramid” (BOP).
The lowest third of this group, in terms of income, still
lives below subsistence level and requires support to
escape poverty. Those at the top of this segment –
about a billion people – are beginning to generate
significant discretionary income. Although they exhibit
considerable productive and entrepreneurial potential,
as well as demand for products and services, most
companies view them as risky, costly and unprofitable
to serve. As a result, the BOP market remains beneath
the radar of most conventional business models, and
many at the BOP are forced to rely on informal
markets and substandard products.
The “BOP” and the “Next Billions”
“Base of the pyramid” (BOP) is a collective
reference to 3.7 billion people populating the
lowest income strata in the world. The income
threshold for this group is US$ 3,000 per person
per year (in 2002 PPP$), or roughly US$ 8 per
person per day.
Within this group are the “next billions” – a large
group of consumers, producers and
entrepreneurs who can be profitably engaged or
served by business, albeit with new and
innovative approaches. Within this report, the
term “next billions” refers to the members of the
BOP whom business has the opportunity to
engage in the near term.
8|
There are compelling reasons to focus on the next
wave of consumers, producers and entrepreneurs that
are found within the BOP. Bringing them into formal
markets will expand and stabilize their incomes and
improve access to basic needs like education,
healthcare and financial services, among others. It can
also trigger economic multipliers, easing social
tensions and reducing inequality.
What’s more, the approximately US$ 2.3 trillionc a
year that the BOP spends (an amount that has been
rapidly increasing) presents a substantial opportunity
for growth and competitive advantage to companies
that are able to access it[1-4]. Although the needs of
the BOP are diverse and vary by country and
culture, once businesses have discovered successful
ways to work with the BOP in one market, they can
transfer the process of innovation to other markets.
Early movers into the market of the next billions will
gain many advantages: by being first to develop new
offerings and establish innovative delivery channels,
they will be in a position to gather valuable insights,
gain greater market share, reach deeper into the
BOP and attract the loyalty of consumers and
producers as incomes grow and needs expand.
Therefore, the next billions offer a meeting ground
where corporate economic benefit and social impact
can come together.
b
c
In 2002 PPP$.
In 2008 US dollars. All figures with regards to incomes and
spends are in 2008 US dollars, unless stated otherwise.
Accessing the next billions does present challenges
– but companies can overcome these by looking
beyond traditional business models. In this report,
the term “business model” encompasses both the
product or service offering, as well as the operational
and financial arrangements that go into generating
returns from a particular activity. Business model
innovation involves significant changes in two or
more components of the business model that
together redefine a company’s position in the market
and create superior value.
community organizations), to implement new
business models. These “inclusive” interventions are
catalysing significant improvement in the livelihoods
of the BOP, creating a virtuous cycle of growing
incomes and purchasing power within their
communities.
To achieve business model innovation, organizations
must first cultivate a more nuanced understanding of
the BOP – how they live and what they need to
improve their livelihoods. Second, they need to look
at economic levers that limit operations in this market,
including the regulatory and policy environment, and
define strategies for overcoming those obstacles.
Although this opportunity is attractive for many
industries, some have made more headway than
others. Packaged goods companies, for instance,
have realized substantial progress in deepening
distribution, and telecommunication players have
been able to reduce hardware, service and
collection costs. By describing current challenges,
highlighting pioneering efforts and distilling principles
for success, this report offers a cross-industry
perspective demonstrating that it is possible to
develop inclusive, profitable and scalable business
models to engage with the BOP.
A number of companies are starting to adopt
successful models that extend their reach into these
markets. They are developing technologies,
products, and services that meet local needs. They
are discovering local capacity for supply and
distribution networks. They are expanding access to
finance for consumers, producers and
entrepreneurs. And they are partnering with each
other, as well as with governments and civil society
organizations (including both public and local
Chapter 2 takes a deep dive into the lives of the
BOP – to understand who they are, how they cope
with their constraints, and what they will need in the
years ahead. Chapter 3 expands on new
perspectives that could help companies break out of
existing mindsets and develop new approaches.
Chapter 4 provides practical design principles for
creating successful new business models. Chapter 5
recommends a way forward to broaden the scope of
business engagement at the BOP.
|9
Chapter 2 – New Markets: Opportunities and Challenges
• BOP households earned slightly more than US$ 2.3 trillion in 2008. If growth were to continue at the rate
seen in recent years, their income would grow to US$ 4 trillion by 2015
• The BOP are not a homogenous group – they live in both rural and urban areas of developed and
developing countries, and their income and spending levels differ
• The BOP cope with difficult circumstances: low and fluctuating incomes, domestic constraints, and a lack
of information. Yet, they are committed to improving their lives and will extend themselves to take on
opportunities for growth and advancement
• Businesses that invest in understanding the needs and lives of the BOP and engage them as business
partners and consumers will unlock substantial value and have far-reaching impact
Although individual incomes of the BOP are low, the
aggregate market is large: in 2008, their income
pool totalled slightly more than US$ 2.3 trillion[1-4].
Since some of them have already begun to
accumulate disposable incomes to spend on goods
beyond basic necessities, they present an attractive
opportunity for market-based interventions.
Incomes for the BOP have been growing rapidly at
around 8% per annum. Even in the context of a
global economic downturn, this market is likely to
see some continued growth. If growth was to
continue at the rate of 8% per year seen in recent
years, by 2015 the aggregate income pool of today’s
BOP could increase to approximately US$ 4 trillion[1-4].
(For an explanation of BOP population and income
calculations in this chapter, see Appendix 1).
The BOP can be divided into three income
segments – lowest, middle and top (Exhibit 1). The
lowest level consists of about 1 billion people[1-4] who
live below the poverty lined and struggle to make
The Base of the Pyramid can be divided into three segments on the basis of income
Segmentation of the Base of the Pyramid
based on income
Rising incomes lead to increased expenditure
on non-food items
Bn people
% of total household spend
4
100
1.1
3.7
80
41%
Food
(inc. alcohol)
28%
Other essentials
(fuel, housing,
transport, education,
medicines, etc.)
32%
Discretionary
(Consumer goods,
communication,
entertainment, etc.)
3
59%
1.6
60
73%
2
40
1
1.0
25%
20
27%
16%
0
0
< US$ 1a
US$ 1-2b
US$ 2-8c
Total
PPP adjusted daily per capita income
< US$ 1a
US$ 1-2b
US$ 2-8c
PPP adjusted daily per capita income
a. World Bank US$ 1.08 a day (at 1993 PPP) adjusted to 2002 PPP.
b. World Bank US$ 2.15 a day (at 1993 PPP) adjusted to 2002 PPP.
c. World Resources Institute cut-off of US$ 8 a day in 2002 PPP.
Source : The Boston Consulting Group and the World Economic Forum analysis based on information from the World Resources Institute, The Economist Intelligence Unit Population Statistics
Database and the IBRD. For further details see Appendix 1
10 |
ends meet. The middle segment constitutes the
largest group, with approximately 1.6 billion people[1-4].
Although they have little discretionary spending
power, they are generally able to support their basic
needs and will require intervention only to improve
the level and consistency of their existing incomes.
The top segment – which comprises around 1.1
billion people[1-4] – has sufficient disposable income
to purchase nonessential products, yet they receive
little attention from most businesses, because their
incomes are still relatively low and tend to fluctuate.
This group may be easiest to engage with, since
they have surplus incomes and already spend on
discretionary items. However, engaging the lowerincome ranges of the BOP is also feasible and
important. If businesses and organizations help to
increase capacity and income among all ranks of the
BOP, they will foster broad-based growth throughout
the market.
In many countries, women undertake most of the
farm labour, as well as food collection or purchasing
and preparation. Yet, women often have less access
to information, credit and services than men do,
which constrains their capacity as producers and
consumers. Companies could pay special attention
to women as an underserved segment and address
their needs, preferences and constraints in the
design of products and services. For example,
micro-farm equipment can be designed to be
affordable and require less intense manual labour,
and food products can be targeted to household
nutritional needs. Since women reinvest most of
their income into the family, they are a powerful
avenue for value creation at the household and
community level 5. Companies that recognize and
invest in this opportunity could help strengthen
community-level productivity and enhance long-term
market growth.
d
World Bank US$ 1.08 a day poverty line in 1993 PPP,
which translates into US$1. 34 in 2002 PPP.
Where do the BOP live?
People living at the BOP can be found all over the
world, yet they are particularly concentrated in a few
areas. India and China alone account for 60%. Asia,
Africa and Latin America together account for 94%
of the total BOP population[1-4]. Africa has the highest
share of the poorest segment – only 65% of Africa’s
BOP population is above the World Bank’s US$ 1 a
day poverty line, compared with more than 86% in
Latin America (Exhibit 2). The majority of the BOP
live in rural areas (68% globally)[2], which adds to the
complexity and costs of reaching them.
Some salient characteristics
Although it is difficult to generalize about a group as
varied as the BOP, it is important to understand the
characteristics that distinguish them from other groups.
They manage low and fluctuating incomes. The
burden of low incomes is compounded by the fact
that income streams for BOP households are
unpredictable. As customers, therefore, they resist
large up-front outlays and recurring expenses in the
form of instalments. In addition, most lack access to
affordable credit which would enable essential
purchases or business investments. Therefore,
companies might look for ways to align their prices
and financing for consumers with incomes that ebb
and flow. They might also design financial incentives
that provide a stable income and encourage
entrepreneurship when engaging with the BOP as
producers.
They cope with domestic constraints and
difficult living conditions. The living spaces of BOP
households are typically quite small. Furthermore,
conveniences that more affluent households take for
granted – such as uninterrupted electricity and clean
running water – have yet to reach many BOP
households. These conditions impose constraints on
both the type of products that the BOP can produce
and consume and their level of productivity.
Companies engaging with the poor could strive to
deliver business and product solutions that address
these constraints.
They are smart shoppers and investors. Since
every cent counts for low-income households, they
are unlikely to spend money on products they don’t
| 11
understand or trust. However, they don’t necessarily
prefer cheaper or stripped-down versions of more
expensive offerings. They want high-quality
products, even if they have to ration their use.
Therefore, they prefer products that are known to be
reliable or are demonstrably superior. For example,
despite cash constraints, farmers will often pay a
premium for high productivity seeds that other
farmers have used and profited from.
They are unfamiliar with many products,
technologies and procedures. At the BOP,
communication channels are scarce, literacy rates
are low, and many consumers are often first-time
users. These factors increase the need for consumer
education, product trials and demonstrations to
explain product benefits and usage. Producers and
entrepreneurs also lack crucial information.
Therefore, companies sourcing from the BOP must
be willing to invest in educating their suppliers as
well.
They look for trusted advice. Because the BOP
are new to many products and have limited access
to information sources, they are more likely to rely on
the opinions of people they know and trust.
Advertisements can help raise awareness, but they
seldom address all the barriers to purchasing a
product. The experiences of friends and relatives –
good and bad – as well as direct experience through
product testing and demonstrations, strongly
influence the BOP’s choice of products and brands.
For that reason, encouraging local groups to
advocate products and services to friends and
creating networks for educating first-time users is a
valuable tool in many business models.
They demand respect. Surveys of low-income
households elicited statements such as: “We need
to be well dressed and look good. Otherwise,
people will not take us seriously. And at school, the
teachers will write my children off as poor and not
deserving of a good education.” Being treated
equitably and with dignity also influences where the
BOP shop. They often prefer neighbourhood shops
People at the Base of the Pyramid are concentrated in certain regions and have
distinct income levels
BOP (Bn)
4
3.66
1.23
(34%)
3
Distribution
of the BOP
across the
world
0.98
(27%)
2
0.58
(16%)
1
0.37
(10%)
0.26
(7%)
0.24
(6%)
0
World
China
India
Africa
Latin America4
Rest of Asiae
Central & Eastern
Europe & Russiaf
BOP population (Mn)
100
80
Income
stratification
within each
category
60
309
(25%)
512
(41%)
203
(21%)
460
(47%)
129
(22%)
249
(43%)
225
(61%)
40
20
413
(33%)
316
(32%)
204
(35%)
0
China
India
Africa
93
(25%)
49
(13%)
Latin
Americad
102
(40%)
87
(37%)
US$ 2-8c
150
(58%)
136
(58%)
US$ 1-2b
7
(3%)
12
(5%)
Rest of Central &
Asiae
Eastern
Europe &
Russiaf
US$ <1a
a.World Bank US$ 1.08 a day (at 1993 PPP) adjusted to 2002 PPP.
b. World Bank US$ 2.15 a day (at 1993 PPP) adjusted to 2002 PPP.
c. World Resources Institute cut-off of US$ 8 a day in 2002 PPP.
d. Includes Caribbean countries.
e. Includes Middle-East, Indo-China, Central Asia, Nepal, Pakistan and Sri-Lanka.
f. CEE includes 18 countries: Baltic countries (Latvia, Estonia, Lithuania), Romania, Bulgaria, Russia, Ukraine, Belarus, Moldova, Slovakia, Slovenia, Hungary, Czech Republic, Poland ,Croatia, Bosnia
& Herzegovina, Serbia & Montenegro, Macedonia.
Source : The Boston Consulting Group and the World Economic Forum analysis based on information from the World Resources Institute, The Economist Intelligence Unit Population Statistics
Database and the IBRD. For further details see Appendix 1.
12 |
– which are familiar and offer personalized service –
over supermarkets, which may require more travel
time and seem intimidating. Companies should
consider such sensitivities and treat the BOP –
whether as consumers or employees – with respect.
They face disadvantages in the market. Because
BOP consumers’ spending power is limited, and the
costs to reach them are high, they tend to be served
by inefficient supply chains. That often results in their
paying higher prices for inferior goods, compared to
wealthier members of their societies – an inequity
often referred to as the “BOP penalty”. This cost
dynamic presents a tremendous opportunity for
organizations and businesses to offer better quality
and more affordable options to the poor. But
realizing that opportunity will require uprooting
entrenched stereotypes and being open to new
ways of engaging with this segment.
Niranjan Singh, Shopkeeper – India
Niranjan Singh lives with his extended family in
Giridih, Jharkhand. He is a trader who sells small
plastic items in six different weekly markets
around his hometown. In recent years, his
income fluctuated unpredictably between US$ 4
and US$ 14 per week, making long-term
commitments difficult; his average annual income
was about US$ 500.
Niranjan travels five days a week for his work,
paying travel costs and rental fees for retail space
in each daily market. He transports his goods on
an auto-rickshaw (a small three-wheeled
motorized vehicle, which he purchased with a
loan and also rents to others). At the start of each
week, he purchases new merchandise from
wholesalers and suppliers. However, he often
found himself lacking the products that his
customers wanted, and holding an inventory of
products that no one wanted to buy.
Buying a mobile phone transformed Niranjan’s
business. He can now procure goods from
trusted suppliers by phone, thus reducing travel
expenses. Vendors call him to offer updated
stocks, enabling him to broaden his product
portfolio. Customers also call him to place and
follow up on orders.
As a result, he has been able to reduce costs,
increase sales and minimize wasted inventory.
Selling the right products at the right time has
increased both the level and the consistency of
his overall income. His weekly earnings now
range from US$ 18 to US$ 20, averaging nearly
US$ 1,000 annually. He is now able to plan and
make financial commitments, such as sending his
children to a private school.
Source: The Boston Consulting Group 2008[6]
| 13
Chapter 3 – New Perspectives:
Challenging Deep-seated Beliefs
• Much of the conventional wisdom about business operations in emerging economies stands in the way of
further growth and opportunity among the BOP
• By adopting new perspectives, companies will be able to view the next billions through a prism of
opportunity
• Organizations will need to think about “who can use the product” rather than “who can buy it”; to unleash
“hidden potential” in the form of undocumented capital and underutilized potential; to collaborate with the
government to bridge gaps in public goods; to balance scaling up (through centralization) with scaling out
(through localization); and to actively align incentives to manage various alliances
• These new approaches can help organizations transform perceived problems into profitable opportunities
for years to come
The BOP have not been completely ignored. Some
companies have made profitable forays into this
market by adapting their offers, creating smaller
packages, or finding innovative ways to cut costs
and prices. Yet, such efforts have only scratched the
surface of untapped opportunities in the BOP
economy. The most successful companies have
gone farther by rethinking stereotypes and
fundamentally altering their business models on the
basis of deep insight into the lives of the BOP.
Much of the conventional wisdom about business
operations in emerging economies stands in the way
of further growth and opportunity among the BOP.
This chapter presents five ways of reframing the
problems that have challenged conventional
solutions:
• Affording access rather than ownership
• Monetizing hidden assets
• Bridging the gap in public goods through private
enterprise
• Scaling out versus scaling up
• Governing through influence rather than authority
These new perspectives can help organizations
transform perceived problems into profitable
opportunities for years to come. Not all of them will
be applicable in all cases. Organizations must
consider where to apply them and how to achieve
the best balance between conventional thinking and
new perspectives.
14 |
3.1 Affording Access Rather than
Ownership
A person doesn’t have to own a product in order to
benefit from it – he or she just has to use it. Yet,
companies tend to measure a product’s market
potential in terms of the number of people who can
afford to buy it. Given the relatively low and volatile
incomes of the BOP, this mindset severely restricts
the perceived potential of these markets. If
organizations think about “who can use the product”
rather than “who can buy it,” they will find a much
larger and potentially profitable opportunity.
Reframing this problem requires new kinds of
metrics to measure market potential and affordability.
What if companies were to measure “access” to
their products rather than ownership? Such access
could be provided through a shared-usage model or
through an entrepreneur who “leases” the product to
customers. This way of thinking has opened up
valuable markets for a number of companies.
In Bangladesh, for example, Grameen Telecom
equipped village women with mobile handsets and,
for a small fee, the women make the handsets
available to others for both incoming and outgoing
calls. Over time, many of these customers have
bought their own mobile handsets – often choosing
a Grameen phone; since it is the brand they have
become familiar with and have grown to trust. As a
result, the mobile phone sector in Bangladesh has
been growing rapidly: from only 200,000 subscribers
in 2001 to more than 42 million at the end of May,
2008. Nearly half of those 42 million subscribers use
Grameen Phone. At the same time, numerous
women have become entrepreneurs and improved
their incomes, thereby reducing poverty and
expanding opportunities. Other organizations around
the world have adopted and extended the Grameen
shared-access model for mobile phone usage,
including offering additional services[7]. The Celtel
case cited in Box 1 is one such example.
Kenya Agricultural Commodity Exchange (KACE)
and Safaricom Ltd combined the shared-access
model with a new application that offers a valuable
information service to farmers and traders. The
service provides information on the prices of specific
commodities via SMS messages – by typing in
“beans”, or “maize”, for example, to find the going
price in the capital. As a result, farmers can access
vital pricing information to target their sales to the
best buyers, and improve their negotiating position
with traders and middlemen. It costs only 15
shillings (20 cents) per use, and the costs can be
shared among the farmers[8].
To challenge conventional wisdom about product
ownership, consider the following questions:
• “How can a company change from a “selling”
mode to one that “deploys” products for use
without requiring ownership?
• How would this new approach affect its
revenues?
• Does such an approach change how the
company thinks about realizing further value from
existing assets and customers?
• What new business models might this new
approach require?”
Emerging Rules for Success
• Focus on the features that will have a high
impact on the livelihoods of the target market.
• Design an offer that makes it possible for them
to access those features, even if it means
going beyond the boundaries of current
business models
• Assess the economic viability at group or
community levels, rather than at an individual
customer or producer level
• Construct an offer that benefits large groups of
consumers or producers and permits pooling
of revenue streams so that the company is
protected from an individual consumer’s
volatile income
| 15
Box 1 – Celtel and Celplay, Democratic Republic of Congo:
Giving Farmers and Entrepreneurs Vital Information
Celtel International is a leading pan-African mobile
communications group, with operations in 15
African countries. Celtel entered the Democratic
Republic of Congo (DRC) market in 2000, revised its
business models and adopted numerous changes
to achieve commercial success. The key innovation
was enabling shared usage. Celtel encouraged the
use of family-shared handsets and handsets
managed by “Mamans GSM” (women who rent
handsets for the price of airtime plus 100 or 500
Congolese Francs (US$ 0.23-1.17), depending on
the region. The business provides an excellent
livelihood for Mamans GSM, contributing as much
as half of the household income, and it also brings
benefits to the entire village through access to
communication and information.
Celtel’s services have helped farmers and smallscale entrepreneurs to reduce the cost of travel, get
information about the price of goods to buy and to
3.2 Monetizing Hidden Assets
There is a wealth of potential capital residing within
BOP communities, but these assets are often
hidden from formal markets[10]. The term “assets”
refers to a broad array of resources that can
generate economic value. This includes
undocumented capital, which is capital that
individuals have used historically or traditionally, but
for which they do not have formal ownership rights.
Undocumented capital could include property for
which a family has tenancy rights but no legal title;
or unincorporated businesses that aren’t funded by
a bank or other traditional investors. The second
type of capital is personal and community resources
that can be leveraged to enable business
transactions, produce or sell goods. It includes the
collective power of a community, which is often
informally used for contract enforcement. Even a
good personal reputation – a prized asset that
allows access to local credit – could be considered
a source of capital. The third kind of capital is
16 |
sell, and assess security and road conditions. It also
created jobs, trained local technicians and a sales
force and built a pool of professionals with
international standards. As a result, families get
information on basic health and education services.
Celtel has attracted more than 2 million customers
in DRC’s 25 provinces. Celtel earns more per
customer in the Congo than it does in more
developed markets, in part because of the low
penetration of landlines (10,000 for a population of
54.8 million in 2002) and mobile phones (10,000
subscribers). Celtel offers a vivid example of how
constraints in infrastructure and security can be a
driver of innovation rather than a barrier to doing
business.
Source: United Nations Development Programme,
2008[9]
underutilized assets, such as civil society
organizations and small and medium enterprises
(SMEs). Many of these entities already have strong
networks within the community and a deep
knowledge of where their untapped sources of value
are. It also includes people with entrepreneurial or
other skills that have yet to be developed.
Leveraging the economic value of these hidden ass•
ets can potentially unlock significant market growth.
Indeed, the aggregate value of such capital is
potentially enormous. Consider the money that
Mexican immigrants earn in the United States and
send back to families in Mexico through informal
remittance channels, or the extraordinarily high
interest rates charged by village money lenders in
India for low-income people with no access to
formal credit. Companies should look beyond the
official models to learn how local communities bring
capital into the system “unofficially”, and seek to
leverage that capital to catalyse further value
creation.
In fact, mobilizing the community is a good entry
point for identifying hidden assets, since the BOP
maintain strong community ties. For that reason,
companies have integrated local community
entrepreneurs into their value chains, in addition to
serving them as customers. Not only does this
broaden the customer base for these companies, it
can also generate higher profits, since the local
entrepreneurs are willing to pay more for resources
they had no access to previously. Lastly, it removes
market inefficiencies and thus creates an economic
multiplier. For example, Mibanco (Banco de la
Microempresa S.A.) in Peru has loaned more than
US$ 1.6 billion in amounts ranging from US$ 100 to
US$ 1,500 to low-income households and their
micro and small enterprises. Mibanco’s innovation
was to design special banking products to be used
for the purposes of housing, agriculture, working
capital, and other necessities. To ensure that the
loans would be paid back, they instituted personal
incentives, such as awards and public recognition.
As a result, they were able to offer credit to people
who never had access to the formal banking system
in Peru[11].
Human resources, which include the large pools of
people who might become producers or
entrepreneurs with adequate training, are another
form of hidden assets. Yet, conventional methods of
developing their skills and collecting the goods they
produce in distant villages are expensive. Another
deterrent is the reluctance of many businesses to
invest in training when the benefits might be shared
by competitors. For example, companies often need
raw materials from farmers in a particular region, but
they avoid sourcing from them because the
products are often poor in quality. Although the
company and the farmers would both benefit if the
company would help to improve the quality of
produce, the company is reluctant to make such
investments because it has no way of ensuring that
the farmers won’t begin selling to other companies
as well.
Emerging Rules for Success
• Tap local knowledge residing in informal
networks for sources of hidden assets in the
community
• Identify local partners with the best access to
community information
• Identify gaps in current roles, construct an
offer that bridges those gaps, and provide
economically attractive incentives for partners
• Provide local producers with the expertise and
tools they need to meet company standards
Uncovering hidden community resources will require
companies to collaborate with other organizations
and possibly even competitors to share community
skills, knowledge and training. But the benefits of
gaining a more skilled, productive and accessible
workforce often justify the effort and cost.
The potential for companies to unlock hidden assets
by collaborating with local communities and
integrating new models with their current ways of
doing business is substantial. To challenge
conventional wisdom about capital assets, consider
the following questions:
• What hidden assets does the target community
have, and how does the community leverage their
value?
• How could the hidden capital that exists in
informal arrangements be brought into formal
systems?
| 17
Box 2 – Barclays Micro Banking, Ghana: Diversifying by Partnering with Susu Collectors
The majority of Ghanaians, especially the poor, do
not have access to banks, credit unions or similar
financial institutions. However, the need for both
savings and access to credit is most urgent among
this section of the population. Indeed, the situation
has led many people, including small enterprises
and traders, to turn to informal mechanisms such
as Susu collectors and moneylenders to meet their
financial needs. Susu, or daily deposit collection, is
a traditional and informal financial institution in West
Africa, and there are about 4,000 Susu collectors in
Ghana. As part of Barclays Microbanking, Barclays
Bank Ghana is embarking on an unconventional
initiative to connect modern finance with informal
financial systems, such as Susu collection in Ghana.
The business dimension for Barclays is centred on
3.3 Bridging the Gap in Public Goods
through Private Enterprise
Developing nations face major infrastructure gaps.
Organizations that set out to engage low-income
groups as customers or producers are often
constrained by the lack of basic infrastructure they
take for granted when serving current mass
markets. This greatly increases the costs of
engaging with the poor, designing products for
them, and collaborating with them for the purposes
of production and sourcing. The missing
infrastructure can include “hard” infrastructure, such
as roads, warehousing, logistics facilities and public
utilities for water and electricity.
It can also include “soft” infrastructure, such as
producer organizations, educational and training
programmes, and basic information on consumers,
including individual identification and credit histories
that allow companies to target them for specific
products and services.
Hard and soft infrastructures enable market activity
and value creation, and they are largely considered
the responsibility of the public sector (such as
governments or development agencies). Organizations
that seek to do business with the BOP overcome
18 |
creating value for money by helping the small
traders focus and sharpen their financial
management skills. In the long run, the bank
benefits by encouraging more traders to appreciate
the habit of saving and, therefore, channel their
savings to the bank through the Susu collectors.
The provision of credit to the Susu collectors for
passing on as loans to the market women allows
the small traders access to funds to invest in their
businesses. That helps to diversify and increase
their sources of income. Barclays was thus able to
bring Ghana’s informal financial systems into formal
channels.
Source: Harvard Corporate Social Responsibility
Initiative, 2007[12]
infrastructure constraints in two ways: they can form
active partnerships with the public sector to improve
the circumstance of the BOP, or they can find
innovative ways – often in collaboration with others –
to bridge the gap in public goods.
Consider the example of Pésinet Health Care, which
funded an innovative initiative to reduce infant mortality
in Mali. Instead of setting up clinics in rural locations,
the company trained qualified local representatives
to perform basic check-ups and communicate the
information electronically to doctors in the cities.
Patients visited doctors only when they needed
hands-on attention. That made the service more
affordable for patients and helped to reduce the
country’s infant mortality rate. For the programme to
become self-financing, the company needed to achieve
economies of scale that required treating 1,200 to
1,500 children. The costs of the project were recovered
by revenues generated by subscription charges,
which were US$ 1.05 a month per child and
included visits to the doctor and basic medicines. In
a similar project rolled out in Saint-Louis, Senegal,
the infant mortality rate fell from 120 per thousand to
only 8 per thousand. The new model has made
basic healthcare more accessible to low-income
people and, because it generates sufficient revenues
in subscriptions, its operations are sustainable[13], [14].
Another obstacle companies face is a lack of
information about the choices and constraints in the
daily lives of the BOP. Indeed, some companies even
find it difficult to identify which groups of consumers
belong to this segment. Government data is often
inaccurate or nonexistent, and many workers lack
official salary records. This can be a particular
challenge for banks. By insisting on official records,
banks lose not only potential customers, but also
the opportunity to catalyse growth and reduce
poverty by providing essential financial services.
Organizations could work towards improving financial
information systems through tools such as credit
bureaus and smart cards. Better, more accurate ways
of identifying low-income consumers and determining
their qualifications and needs could be achieved
through a consortium of companies that stand to
benefit from this effort, rather than a stand-alone
organization. For example, A Little World, a technology
company based in Mumbai, India, launched a project
in which a consortium of six banks provide
biometrics-based identification cards and RFID
smart cards and near-field-communication mobile
phones to people without bank accounts. Not only
has the consortium made it possible to offer banking
services without the expense of building branches, it
has also built some invaluable soft infrastructure in
the form of credit information that can be used by
many other industries over time to accurately identify
and track their customers. That allows companies to
expand their boundaries and partner with companies
in other industries to share investments and returns[15].
Private intervention can support the creation of public
goods – not just for philanthropic reasons, but also
to ensure long-term profitability in low-income markets.
Interventions in the public domain by many companies
around the world have demonstrated that they can
add value for customers as well as producers. To
challenge conventional wisdom about investing in
public goods, consider the following questions:
• Will investing in a public good that also benefits
competitors actually improve near-term profits?
• Who will decide how much each partner will gain
from opportunities and how much each could invest?
• How can the organization create an open
partnership model to facilitate entry and exit of
partners over time?
Emerging Rules for Success
• Invest in both hard and soft infrastructure as
needed to execute the new business model.
• Consider partnering with competitors and
players in other industries and government
• Consider the cost of bridging infrastructure
gaps as part of an overall capital expense and
value the investment according to its life-time
worth, rather than its immediate returns
• Be open and willing to explore a variety of
“unconventional” revenue streams, but bring in
partners rather than doing it alone
3.4 Scaling Out versus Scaling Up
To serve customers efficiently, companies often work
to reduce the unit costs of products and achieve
economies of scale through centralized production
in large factories. But this model has two problems
when it comes to the low-income market. First, it
increases the costs of serving and sourcing
(warehousing and distribution) since producers and
customers live far from central factories. Second,
centralized factories often produce standardized
products for global or regional markets, which is
often not what low-income consumers need or
want. The BOP’s requirements for locally-targeted
products often cannot be met with standard lowcost production models. Companies therefore need
to rethink strategies or scaling in this market.
What’s more, companies often attach hierarchical
structure to large-scale operations. As they seek to
“scale up” an innovation, they standardize structures
in the forms of decision rules, measurement
| 19
systems, and organizational models. While these
can boost efficiency in large-scale standardized
markets, they can also limit innovation – a key
quality for success in diversified BOP markets.
Companies should instead seek to replicate
innovation, constantly adapting it along the way, in
order to expand their market and offer a new
pathway to growth.
One of the problems with large-scale sourcing and
production schemes is that they are designed for
high-density areas. The traditional concept of
economies of scale often fails when it comes to
serving the low-income markets. Although demand
and supply in this market is potentially very large in
the aggregate, these consumers buy and sell locally
because they live primarily in small, scattered
groups. The alternative to scaling up is to scale out:
create experiments that can be adapted and rolled
out to increasing numbers of markets. That involves
the low-income people as producers and
distributors, as well as consumers, and it minimizes
overhead.
Yet, scaling up and scaling out are not mutually
exclusive. Instead, organizations need to balance
scaling up (through centralization) with scaling out
(through localization) to achieve the right
combination of low costs and customized solutions.
To accomplish this, organizations could deconstruct
their value chains and for each step consider the
trade-off between centralization and localization. The
resulting model could reduce costs and enhance
customer appeal, reach, and credibility.
Aravind Eye Care in India exemplifies such a model
in using metrics in initial examinations to triage
patient needs. Its staff of local entrepreneurs
examines patients at low-cost community centres,
which are located in remote towns and villages.
Basic examination, screening and preliminary
diagnostic procedures can be carried out by these
entrepreneurs with minimum training. Cases
requiring consultation with an expert are dealt with
by e-mailing patient-exam reports to doctors in
cities. These doctors are highly trained and form a
costly resource in the treatment chain. Only patients
that need hands-on treatment are referred on to
select hospitals. Each small community centre is
self-sustaining, because it uses local resources and
inexpensive basic instruments. The organization has
grown by leaps and bounds and that has given
many more people access to good eye-care
services. It has also made Aravind a huge success.
A recent study conducted by a hospital showed that
after treatment, 85% of the men and 58% of the
women who had lost their jobs due to sight
impairment were reintegrated into the workforce[16].
Rethinking business models can create considerable
benefits not only for companies, but also for
individuals. By starting with a few trials, then
replicating the innovation and adapting it along the
way, companies can eventually reach markets
sufficiently large to ensure profits.
Box 3 – Fabindia, India: Bringing Customers to Indian Artists and Indian Arts and Crafts to the World
The lack of organized supply chains in India results
in extremely low price realizations for individual
weavers and artisans. Fabindia started as a
wholesale export company in 1960 and has since
established itself as a major player in the Indian
retail market, with 17 community-owned companies
as its associate companies. These companies have
their own warehouses, contributing to the efficiency
of Fabindia's supply chain. Their principal buyer is
Fabindia, which positions itself as an ethnic-chic
store for a variety of products, particularly garments.
Fabindia focuses on retail, wholesale exports, and
institutional sales to corporations, resorts and
20 |
hotels. Fabindia had US$ 80 million in sales in 2007
and plans to establish growth to 250 stores over the
next four years. Artisans Micro Finance Pvt Ltd
owns 49% of Fabindia, while 20,000 artisan
shareholders own 26%, with private investors and
employees making up the final 25%. As a
community-owned company, the value of the
artisans’ shares increase as the company’s stock
rises. Some artisans have doubled their share value,
which they can use as collateral for loans.
Source: Word Press, 2008[19]
In traditional large-scale production models, everything
from procurement to production, processing,
packaging and marketing is standardized. That works
efficiently when companies can use established
channels for supply and sourcing, and they are
targeting middle- and high-income consumers.
However, production costs increase when demand
is broadly dispersed and volumes vary, as is the case
at the BOP. In these settings, localized production
centres can be a more effective approach. The
French company Nutriset S.A., which manufactures
Plumpy’Nut, a fortified food for extremely
malnourished children, has adopted such a strategy.
The company sought to lower manufacturing and
delivery costs, allow flexible production schedules,
and maintain high quality standards by introducing a
tailored licensing system. It outsources production to
local franchisees, some of which operate as minimanufacturing units, in Malawi, Niger, Ethiopia and the
Democratic Republic of Congo, and plans expansion
to other regions. Nutriset works intensively with
franchisees on quality control and monitoring. This
makes it possible for local production to significantly
reduce delivery costs, while creating jobs and
capacity[17].
Although the pursuit of economies of scale has been
a central tenet of conventional business models for a
long time, the means to achieve it are different for
BOP markets, where scale is often better
understood and evaluated at the micro, rather than
the macro, level. To challenge the conventional
wisdom of economies of scale, consider the
following questions:
• Where should the company scale up and where
should it scale out?
• Can the company balance both kinds of scale
simultaneously?
• How will the company adopt a decentralized
system, encourage innovation, and still ensure
product quality and effective management?
Emerging Rules for Success
• Design products and processes for micro
markets and evaluate them accordingly
• Leverage what has been learned from other
local initiatives rather than create over-arching
structures for monitoring. Maintain
decentralized governance and implementation
3.5 Governing through Influence
Rather than Authority
As companies grow, the natural inclination is to exert
more control on decision-making and tighten
monitoring and audit systems. Yet, at the BOP,
information gathering and control has to happen
through collaboration and with local partners. Given
the wide dispersion of villages and communities in
emerging marketse, it is crucial to retain a high degree
of flexibility and decentralization, in order to adapt to
local changes and control costs. To reduce the
overall costs of monitoring when enlisting the BOP
as consumers and co-producers, companies must
first align their goals with the community’s interests
and then introduce local checkpoints. Organizations
that have managed to link their interests to those of
their local partners have found that they can deliver
more value at significantly lower cost. This is also
true for partnerships with different organizations.
e
For the purposes of this report, an emerging market is one
whose social and business activities are in the process of
industrialization.
| 21
local talent, which addresses the problem of “brain
drain” – the outmigration of skilled professionals –
that affects many developing countries[20].
Even after aligning with the interests of local partners,
companies will still need to ensure that standards,
payments and other requirements are met. Some
companies appoint an “aggregator”, who serves as a
point of contact for accountability and fee collection
from the community. For instance, rather than trying
to collect money from individual customers in a
village for using its services, a company could
consolidate payments using a commission-based
local entrepreneur who collects payments from
individuals, thereby reducing the collection costs for
the company and ensuring timely payments.
When considering doing business with BOP
communities, companies are often concerned about
the substantial monitoring costs that might be
required to ensure compliance with quality
standards. A better approach is to reduce the need
for monitoring by aligning the interests of the
employees with those of the company so that
employees are motivated to deliver better results.
This can be achieved by developing shared
aspirations and values, leveraging incentives such as
profits so that employees benefit when the
organization benefits. In order for this to work,
however, companies will need to rethink their
business models and current shareholders will need
to relinquish some rights in exchange for broadening
the range of benefits.
One organization that has succeeded with such a
partnership approach is Child and Family Wellness
Shops in Kenya. They have adopted a franchise
model to deliver healthcare, and offered the nurses
who run their local clinics shares in the company.
That motivates the nurse-owners to provide high
quality healthcare and reach out to the community
with information and education. Not only has
providing nurses with better remuneration improved
health in the community, it has also helped to retain
22 |
Some companies partner with communities for the
purposes of governance. That’s what the Manila
Water Company Inc. did when it established a
community-based collection programme for water
consumption. To assess and collect fees, it installed
a “mother” meter for the whole community, which
was responsible for jointly paying the bill. The
community now employs local checkers to ensure
individual payment, which saves the company from
having to employ additional resources. As a result,
the programme has become a source of local
employment, generating more than 10,000 jobs
since it started operations in 1997[21].
Besides working with local players, businesses can
partner with other organizations to create and share
assets. But these organizations should be viewed
more as a network of peers, rather than vendors.
One of the main challenges with such arrangements
is the establishment of clear governance standards.
Often partnerships have broken down because the
partners didn’t share common goals. Even when
aspirations and values are shared, the partnership
must still create an open architecture for organizations
to enter and exit on the basis of their capacity to
operate in the market. For example, if there is an
arrangement among financial sector companies to
create a common customer-credit database, each of
the players ought to be able to contribute and
benefit. There should be clear guidelines for how
various organizations will participate and how their
contribution will be valued, if they choose to exit.
Emerging Rules for Success
• Align incentives to create “natural” monitoring
mechanisms and structure the programme so
that there is a clear economic benefit for the
business partners to follow agreed-upon
guidelines
• Create entrepreneurs rather than employees
and provide flexibility and a high degree of
autonomy in decision-making
There is authoritative power in the social forces that
bind communities together, and the key to success
among the BOP is to tap into it. Companies that
have aligned the interests of communities, and then
allowed individuals and other partner organizations
to manage them, have unlocked great potential,
while reducing the overhead costs of monitoring.
The key to making partnerships work lies in aligning
the interests of all stakeholders towards a common
goal. That calls for viewing community members as
partners, not just salaried employees. To ensure
quality control, companies can engage managers at
the community level and design incentives for the
communities to manage themselves. To challenge
conventional wisdom about governance, consider
the following questions:
• What partners – with whom the company might
share responsibilities and profits – can help it
achieve its goals? Will the organization be willing
to relinquish its power in order to lower
monitoring costs?
• How can the company align incentives to
reinforce accountability and trust with the
community?
• How can the company establish clear
governance standards and an open architecture
where partners can enter and exit freely?
• How will the company value their contributions
despite its focus on long-term profits?
Box 4 – Rajawali’s Express Taxi, Indonesia – Creating Incentives for Entrepreneurship
At the height of the Asian financial crisis, hundreds
of large corporations and small businesses closed
down, resulting in massive lay-offs. In Indonesia, the
unemployment rate rose from 4.7% to 9.1%. Road
conditions were very poor: 36,000 people were
killed in auto accidents in 2005. That is nearly 100
deaths per day – the second worst record in the
world. Rajwali’s Express Taxi entered this
environment, and to access capital, collaborated
with leasing companies and banks to purchase taxi
units. These taxi units were offered to drivers with a
partnership scheme. The drivers make an upfront
payment of Rp. 5,000,000 (~ US$ 400) and make
daily payments of Rp. 170,000 (~ US$ 14), and
after five years the drivers are eligible to own the
car. As a result, it transformed the traditional
business model between large transport companies
and drivers’ groups into a business-to-business
partnership. To ensure that customers were served
well, Rajawali provided training and transportation
allowances of US$ 1.00 a day to its drivers. The
company quickly became the country’s secondlargest taxi operator with a fleet of 2,257 taxis and
4,000 drivers. Other businesses benefited from the
drivers’ earnings, including food vendors, consumer
electronics stores and clothing shops.
Source: United Nations Development Programme,
2008[22]
| 23
Chapter 4 – New Approaches:
Design Principles for Success
• Companies will need to innovate their business models targeted to the BOP to unlock their potential as the
“next billions” who can be engaged by business
• Companies need to redesign their offers, their product supply chain arrangements and their marketing and
communication to profitably engage with the next billions
• Collaboration with other companies, government, civil society organizations and especially poor
communities themselves is critical to improve economics, enhance offers and fill gaps
The chapter concludes with a discussion of how
companies can help new business models succeed
by unshackling the organization. It should be noted,
24 |
4.1 Create Life-enhancing Offerings
Life-enhancing means offering products and services
that improve livelihoods and trigger the economic
multipliers that allow the next billions to overcome
their constraints. Rather than offer the same
products they sell in the mass markets of developed
economies, companies need to adapt their products
and prices to the specific needs of the next billions.
fe
-e
of nha
fe
rin nci
gs ng
Framework for innovation:
Design principles for success
ed
ur ly
ig pp
nf su
co ct ns
Re du hai
o c
pr
This chapter addresses what it will take to convert
the BOP into the next billions. It presents a set of
design principles for developing new business
models that are based on an analysis of more than
200 case studies and numerous discussions with
companies planning on or currently engaging with
the next billions as consumers, producers or
entrepreneurs. The design principles are structured
along four parts of a typical business model: product
innovation, supply chains, marketing and
partnerships. They apply specifically to the
circumstances of the next billions and together
present a framework for innovation. The five
principles, seen in Exhibit 3, are:
1. Create life-enhancing offerings
2. Reconfigure the product supply chain
3. Educate through marketing and communication
4. Collaborate to form non-traditional partnerships
5. Unshackle the organization.
however, that these principles are given as
suggestions rather than prescriptive solutions. There
is no silver bullet in this market. Organizations will
need to be prepared to consider many kinds of
innovations on several fronts.
Li
The BOP often find themselves having to make
difficult compromises: their incomes are limited, yet
they desire products and services that are suited to
their needs; they require information, yet they have
difficulty accessing it; they live in scattered towns
and rural villages, yet they must deliver their wares
to distant markets. Companies first need to invest in
developing a comprehensive understanding of the
BOP and the constraints they face. The next step is
to create new business models that break these
compromises and give low-income people a
sustainable foothold in a market that allows them to
thrive.
Creative
collaboration
Educational
marketing and
communication
Unshackled
organization
A farmer in a rural area, for example, may want a
rugged mobile handset with a data feed that
provides wholesale prices at nearby markets,
whereas a day labourer in a city may care more
about how the handset looks and feels and its ability
to take pictures. Therefore, mobile operators and
handset manufacturers need to design products and
services that deliver both aspirational and pragmatic
value. Research suggests the following practical
guidelines:
Price for the budgets of the next billions.
Because the next billions have low incomes and little
savings, large up-front purchases are often out of
their reach. For many products, pricing will involve
some consideration of credit terms. Producers and
retailers of large-ticket items, such as durable
goods, for example, could offer financing tailored to
the next billions’ budgets in order to increase sales.
Service providers, such as mobile operators, could
“fit the pocket” of consumers by lowering recharge
amounts, offering flexible terms, and encouraging
free or low-cost trial use.
One of the best ways to make products available is
to offer less expensive and smaller packages. For
example, a BOP customer may need a small loan
for a one-time purchase of inputs for a business
operation or for an emergency. Yet, many
institutionalized credit offerings are expensive and
available only for large amounts. With a minimal
investment in restructuring, a financial institution
might offer small-size loans with flexible repayment
terms. Since families tend to pool their funds for
expensive purchases, certain products should
appeal to all family members. One possibility would
be prepaid family plans for mobile handsets because
family members tend to share them.
Tailor products to address local constraints
and emphasize quality. Developing low-cost
products shouldn’t mean sacrificing quality. In fact,
because the BOP can’t afford products that break
down, they will often pay a premium for quality they
can trust – even if they have to use credit or trade
down to less expensive products in other
categories. Some companies have demonstrated
successful examples of assuring quality for locally
tailored products and in turn earning the loyalty of
the consumers. Take the example of International
Development Enterprises India (IDE India) which is a
Ramesh, Farmer – India
Ramesh cultivates onions and peas on his 2.5hectare plot in the Raigad district of Maharashtra,
India. He lives with his wife, their two children and
his parents, while a younger brother works in the
city. He places a high priority on securing a good
education for his children and is determined to
see them have a better life.
Ramesh’s land is rainfed and generates two
harvests in a good year, earning the family an
annual income of US$ 1,000. At the start of the
season, Ramesh takes a loan, either from the
local bank or the village moneylenders, to buy
inputs. In years of drought incomes are low – and
with little savings, debt repayment becomes
difficult.
He sells his harvest to various vendors in larger
towns and cities. Determining who to sell to
requires a great deal of planning and travelling.
Prices vary according to buyer, location and time
of year. Ramesh usually travels to two or three
sites to assess prices before hiring a small truck
to ship his produce to the selected buyer.
Typically, Ramesh does not get paid immediately
upon delivery. The owner of the market stall pays
him whenever he next visits the town.
With access to better information on farming
practices and local market prices, Ramesh could
improve his productivity and earnings. Better
access to credit would also allow him to increase
his return on investment.
Source: The Boston Consulting Group 2008[6]
| 25
social enterprise that engages actively with smallscale farmers by supplying manually operated
treadle pumps. As uninterrupted power supply is
rarely available to these small landholders, they
could not use electrical pumps. IDE India designed
pumps which required no power supply and enabled
farmers to trade up from manual methods of
drawing and transporting water to the treadle
pumps. In order to keep retail prices low, product
manufacturing is outsourced to local manufacturers,
who follow a stringent quality assurance programme
and participate in IDE India’s warranty scheme. The
enterprise has also facilitated partnerships in service
hubs that provide processing facilities and allow for
intermediary sales of produce. This provided broadbased support to farmers and convinced them to
pay money for the product as its easy to use and of
high quality. IDE India has successfully helped
farmers to increase their productivity and in many
cases they have doubled their income, often within
two years of purchase[23].
Develop environmentally sustainable
approaches. Raising the income and consumption
level of the BOP will place immense pressure on
already-stretched resources such as land, water,
energy and ecosystems. Therefore companies
should explore economically sustainable solutions
that have a minimal impact on the environment.
Products and services offered to low-income
populations should aim for innovative and ecofriendly methods of production and consumption.
Goods marketed to the next billions should utilize
packaging that minimizes environmentally harmful
wastes. Farming techniques and inputs should be
developed to address environmental concerns while
also enhancing farmers’ incomes.
26 |
4.2 Reconfigure the Product Supply
Chain
Of the BOP, 68% reside in rural areas, where
physical access – for both distribution and sourcing
– is a challenge. Even in urban areas, distribution
requires a network of micro-traders. Companies
often wrestle with tradeoffs between cost, coverage
and control. Distribution networks need to reach
disparate neighbourhoods and villages, while
remaining viable at low volumes and prices.
Manufacturers need to ensure that they have
adequate oversight of pricing, stocking, and service
throughout the distribution chain to fulfil quality
requirements. The following recommendations could
guide the design of effective distribution networks:
Source from local producers. The potential for
increased agricultural production is one of the
“hidden assets” that often lies untapped in BOP
communities. Companies can develop this value by
working with local producers to improve the quality
and volume of their output for a specific market.
Sourcing locally can reduce the cost that companies
incur to reach and serve the next billions, enable
provision of customized products for local
preferences, and build trust and credibility for the
company’s brand. Most importantly, it can provide a
sustainable source of local income, which is vital to
BOP farmers facing volatile markets. Companies
might offer mechanisms such as forward contracting
or guaranteed purchasing to reduce risk and
uncertainty for farmer incomes. Local sourcing,
however, often requires companies to expand their
traditional role and actively coordinate the full supply
chain, often enough by cooperating with several
partners. One of the most prominent examples of
local production is Shokti Doi yoghurt, which was
introduced by Grameen Danone Foods Ltd in
Bangladesh. Shokti Doi is sourced from, partly
processed by, and distributed and consumed by the
local low-income segment[24]. Once a coordinated
supply chain is established, it will grow into a
platform that can facilitate other benefits to producer,
consumer and company. Another successful
example in this domain is Fair Winds Trading Inc., who
partners with Gahaya Links, a Rwandan womanowned firm that manages a network of 3,000
Rwandan women who weave baskets sold through
an exclusive agreement with Macy's in the US[25].
Broaden reach and save costs by leveraging
local distribution channels. Service providers can
work with local entrepreneurs to leverage existing
low-cost distribution channels. In Brazil, Nestlé
outsources the “last mile” of its distribution network
to women entrepreneurs in small villages. They
receive the company’s products through the mail
and sell them door to door throughout the
neighbourhood, thus increasing the company’s
reach and brand credibility. Another company in
India gives its salespeople bicycles to reach villages
with populations of less than 5,000.
Javan Isindu, Beekeeper – Kenya
Companies could also cooperate to bundle product
distribution in BOP regions, thus reducing costs for
all involved. Small product manufacturers in Brazil
partner with international retailers such as Carrefour
and Wal-Mart to supply private-label products,
thereby reducing retailers’ supply-chain costs, as
well as manufacturers’ marketing costs. As a result,
nearly 33% of the population is now buying privatelabel products[. In South America, S.A.C.I. Falabella
started providing financial services to unserved
segments as a way to drive retail sales; the services
now generate at least 50% of the company’s bottom
line. In another example from Brazil, banks have
offered their products and services through lottery
shops and post offices. As a result, 28% of
unserved municipalities and 98% of Brazilian towns
now have banking services.[27]
In addition, companies can capture discretionary
retail spending by combining distribution efforts.
Agricultural retail centres in Indian rural areas offer a
one-stop shopping service, providing small-scale
farmers with a range of products and services.
Find creative ways to overcome infrastructure
constraints. A key constraint in sourcing goods
from BOP producers is the risk of loss or damage of
agricultural products due to poor storage and
transport infrastructure. Companies buying from the
poor have been addressing this by establishing
“scaled out” local processing and collection centres.
Training producers and handlers can also help
reduce these losses. Sometimes, it doesn’t take a
lot to realize significant improvements. Metro, a cash
and carry outlet in India, suffered losses in its tomato
supply as high as 40%. It turned out that during
their breaks, handlers sat or slept on top of bagged
Javan Isindu is a farmer in Siaya, Kenya’s poorest
district, where 60% of the population lives below
the national rural poverty line of US$ 288 per
year. Farming on land alone is insufficient to meet
all the financial needs of Javan’s family. He and
other local farmers find beekeeping to be a good
source of supplemental income, as the hives are
relatively low-maintenance and take up little
space, and the bees help cross-pollinate their
crops, boosting farm yields.
Each of his 10 beehives generates up to US$
150 per year, a substantial addition to his family’s
income. He also hosts 20 additional hives for
other community members. Javan delivers the
honey by bicycle to a collection centre run by
Honey Care Africa, a regional company. The
collection centre engages 70 farmers and is
administered by a local steering committee. The
honey is extracted, and then shipped to Nairobi
for processing, packaging and shipping to local
and international retailers.
Source: World Economic Forum, BAACH Kenya
2007[26]
tomatoes. By changing its packaging to crates on
which they could sleep, Metro was able to reduce
waste to 15%[28]. Companies can also turn the lack
of infrastructure into a business opportunity. The MPESA service by Safaricom in Kenya, for example,
allows individuals to transfer money via mobile
phones. Cash can be deposited or redeemed at
local shops that are licensed as agents. By
converting small-scale local retailers into a
| 27
distribution network for the service, the company is
overcoming the lack of more established service
channels.[29]
4.3 Educate through Marketing and
Communication
Given low literacy levels and lack of access to mass
communication, BOP consumers are often unfamiliar
with new products and their intended benefits. As a
result, companies need to create marketing
programmes that are as educational as they are
persuasive, and they must establish strong credibility
and recognition for their brands.
Educate about product benefits. Once BOP
consumers are convinced of the value of a new
product, they are often eager to invest in it.
Unilever’s successful hygiene promotion campaigns
in India involved product promoters visiting villages
to educate consumers on the health benefits of its
soap. In a similar manner, agricultural input
companies have used farmer training programmes,
agro-dealer certification, and model farms to train
farmers on the use and benefit of specific products.
Companies can create opportunities for new
customers to experience their products firsthand
through displays, guided product trials, or
explanations by trusted advocates. This approach is
especially necessary for complicated products such
as electronic equipment, as well as for products that
might be perceived as potentially harmful, such as
fertilizers and other agricultural inputs. In India,
28 |
Hindustan Unilever’s Project Shakti – a distribution
network of village women – is a good example of
explanation by trusted advocates. The women
educate their neighbours about the need for
personal hygiene and demonstrate the effectiveness
of the company’s products[30].
Create word-of-mouth advocacy. Consumers in
this market are more likely to trust a friend or family
member than a salesperson they don’t know.
Leveraging such informal communication networks
can become a powerful sales tool. That insight led a
Brazilian retailer to hire salespeople from the same
neighbourhoods where its customers lived and
thereby increase its sales significantly. One
consumer-goods company in India identified key
opinion makers in several communities and
developed a partnership with them to market
products in the neighbourhood. The company’s
offerings now reach 80,000 villages, which account
for about 15% of its rural sales[27]. Intel Corporation
partnered with the Vietnamese government to
advocate its low-price Thánh Gióng personal
computers in rural community centres; the company
now sells over 3,000 systems a month to small
business owners in Vietnam[27].
Aim for trust and identity in branding. Lowincome consumers are generally more willing to
accept an unfamiliar product if it carries a wellknown brand or is endorsed by a trustworthy
institution. Companies with strong brand recognition
can leverage that asset by launching additional
products and brand extensions.
However, because many companies have yet to
access BOP markets, relatively few brands are
widely recognized. New entrants to the market can
overcome this obstacle by partnering with
established brands in another industry – for example,
a financial services firm could collaborate with a
trusted consumer products brand to promote its
services. A number of Latin American companies
have successfully used this model – for example, the
arrangement between the Brazilian retailer Magazine
Luiza S.A. and Unibanco (União de Bancos
Brasileiros S.A.) to offer consumer credit for
shopping[27].
Once a company has secured customer loyalty, it is
important to preserve that trust. Many BOP regions
have few or poorly-enforced consumer-protection
regulations for truth in advertising or labelling.
Consumers therefore rely on direct experience or
inter-personal communication to form an opinion
about a brand. Building and preserving a strong
reputation therefore becomes key for companies
seeking long-term success in the BOP market.
Consumer trust must be secured through consistently
delivered quality and reliability.
4.4 Collaborate to form Nontraditional Partnerships
As noted earlier, mass production is often ineffective
in the BOP market. Serving this segment requires
companies to go beyond traditional “we-make-itand-you-buy-it” relationships to include the BOP in
the actual production of the offer, as well as its
distribution. By engaging with the BOP as a market
of producers as well as consumers, companies can
substantially lower the cost to serve, since the local
communities have established networks and deeper
reach. This includes collaboration on two levels:
partnering with local communities and collaborating
with organizations. Such arrangements are a good
way to reduce production costs. Collaboration also
captures “hidden” assets – in the form of untapped
resources and local knowledge – while increasing
local incomes. That enhances the BOP’s ability to
purchase more goods and services and generates a
virtuous economic cycle for long-term sustainability.
Ana Maria, Seamstress – Brazil
Ana Maria is 36 years old and used to work as a
part-time housemaid in São Paulo. She has two
children – her son is nine years old and her
daughter is eight. She is a single parent and had
no additional source of income.
Ana worked only in the mornings and came back
home every afternoon to look after her children.
She earned approximately R$ 300 (US$ 120) per
month, and on days that she was unable to reach
work because one of her children was ill or because
she had to visit their school, she lost her wages for
the day. Maria had a few free hours every evening,
but she was unable to leave home at this time
because of her children. Since Ana worked as a
housemaid, she did not have any documentary
proof of her income. As a result, no bank was
willing to give her a loan.
She was finally able to get small loan through a
special retailer scheme. The loan was extended
to her without any documents. She used this
money to buy a sewing machine and started
repairing clothes. She worked from home in the
evenings and was able to use her free time at
home to earn more and fill in the gaps even when
she couldn’t make it to work.
Ana has now started working as a seamstress
from home and supplies clothes to the local
retailer who pays her a fixed fee and profits,
depending on the profits made. She now makes
approximately R$ 600 (US$ 240) per month and
has bought a mobile phone for herself. She has
purchased a TV and a fridge and is thinking of
expanding her business by co-opting some of the
women who live in her neighbourhood.
Source: The Boston Consulting Group 2008[31]
| 29
Unlock local potential by engaging with
communities
By employing hidden assets in local communities,
companies can reduce overall cost to serve,
customize local offerings, improve delivery, and
penetrate deeper into markets to fill gaps.
Partner with communities rather than individuals.
One of the biggest challenges in using local
resources is the cost and complexity of sourcing
from small-scale producers. A potential solution is to
involve community aggregators, often village leaders,
who can serve as focal point for a group of
producers. PepsiCo in India uses such an approach
in its contract farming program for high quality
potatoes. PepsiCo signs contracts with group of
farmers in a village and empowers a village
coordinator who enjoys the confidence of the
farming community. The coordinator aggregates
supply, disseminates information on farming
practices and technologies, and plays a role in
setting mutually agreed and preannounced prices.
Not only do such aggregation schemes make it easier
for companies to source in this market, they also make
sourcing from the BOP easier for the local community.
Most families who supply to companies aren’t able
to guarantee a consistent flow of goods because
they have other constraints. For instance, women
who weave high-quality carpets also need to take
care of their families. Since they work on varied
schedules, they can’t deliver fixed volumes directly to
the companies who buy their goods. But when village
women work together collectively, they can organize
their work flow so that the company can receive regular
shipments of goods in required volumes.
30 |
Invest in talent and expertise building. Another
problem with integrating local producers is that they
often don’t have the necessary skills to meet a
company’s quality standards. Most companies are
reluctant to invest in workers’ skill base when that
may also benefit its competitors. Furthermore, the
investments required are substantial and often entail
building missing infrastructure, so they can be
unprofitable for single players. One solution is to set
up consortiums with other companies interested in
the market and work collectively towards creating a
talent pool. Another option is to deconstruct the
value chain and “de-skill” activities performed in the
field or at the point of service delivery. The Aravind
Eye Care model in India[16] and the Pesinet
healthcare model in Mali[14] are two examples of this.
In both cases, specialist doctors remain in cities,
while field staff who have received basic training
perform the first level of patient screening and
information collection for diagnosis.
Create incentives that encourage selfgovernance. Most organizations are reluctant to
source from the BOP because they believe quality
will be poor, and monitoring for quality control is
costly. Yet, it is possible to establish low-cost local
checkpoints to ensure that quality standards are met
by aligning the interests of the co-producers. CocaCola innovated along these lines in developing
countries in Asia and Africa, where it established
“manual distribution centres” (MDC) staffed by local
entrepreneurs. Originally developed in East Africa by
its bottling partner Coca-Cola Sabco (CCS), the
distribution system is built around thousands of
small, independent distributors. Coca-Cola bottlers
actively manage MDC owners as third parties,
supporting them to establish their operations, secure
microfinancing, and design effective delivery
operations to keep customers in stock[18].
Form deep collaborations with unconventional
partners
To succeed in this challenging market, companies
need to work with other players to develop the right
products, services, and delivery mechanisms. But
serving the next billions will require them to go
beyond traditional forms of partnership, to include
civil society organizations and even competitors. In
doing so, they will be able to share costs, as well as
capabilities and knowledge. And they can enhance
current offers through bundling and convenient
access, and fill the gaps in market infrastructure.
Share products and assets. Companies can
partner to bundle several products and services
together, often making those products more
affordable. In Brazil, Telefónica S.A.’s partnership
with Abril S.A. to offer Internet services over the
television network is one such example. Companies
can also share distribution and retail networks, and
leverage common logistics and facilities[27]. Consider
the partnership of IFFCO, a fertilizer company in
India, and Airtel, a telecommunications company.
Airtel realized that IFFCO had an established and
efficient sales channel to widely disperse rural
farmers, so Airtel used it to market and distribute its
own products for farmers[32].
Channel sharing might also involve a global medical
company providing local drug companies in
emerging markets with licenses to produce lifesaving drugs. The local companies bring to the table
a deeper reach and more efficient sales force, while
the global company brings superior capacity in
research and development systems. The global
company might also be able to receive benefits from
the government for such initiatives.
Share capabilities and knowledge. Organizations
can also collaborate in deeper ways to distribute or
process information, share knowledge for product
innovation, or improve efficiency. For example, the
records that telecommunications operators have on
individual payment histories could be used by a
finance company as a proxy to establish their credit
worthiness. Financial service companies are
exploring ways to use this information to provide
micro-insurance and other financial products. Or an
insurance company might enter the low-income
market by having the local postman help to market
its products door-to-door and return with feedback
on product satisfaction. Such collaboration practices
give companies rapid access to critical knowledge
on market movements and local consumer
behaviour, and they help to eliminate the market
inefficiencies of reaching the BOP.
Make Partnerships Work. The pay-off for nontraditional partnerships is the development of
valuable skills in producers, partners, and
consumers that will provide long-term profits. They
will also help to build mutually beneficial
infrastructure for all stakeholders, including
governments. To make such partnerships work,
companies should assess their capabilities, assets,
and knowledge base – then identify other partners
who have the additional resources they need. Next,
they should analyse the pros and cons of
collaborating, with a long-term view of profits. In
initiating a partnership, they should establish clear
| 31
governance structures, clearly outline roles, and
agree on how the outcomes will be distributed for
mutual benefit. Finally, before work begins, they
need to make sure their systems and performance
metrics are aligned.
One of the most important things for companies to
keep in mind when partnering in the BOP market is
that some companies have a head start. These
leaders can serve as active drivers or facilitators,
and not merely participators. That means
orchestrating an arrangement in which it is easy for
new players to enter and old ones to leave in order
to maximize adaptability to changing conditions.
4.5 Unshackle the Organization to Help
New Business Models Succeed
Most organizations – even those well established in
emerging markets – focus primarily on serving mass
and affluent markets. As a result their cultures,
organization structures, and metrics are likely to be
out of step with the demands of BOP markets.
Companies might consider the following remedies:
Demonstrate senior level commitment. Success
in next billions markets requires strong commitment
from the leadership team and active advocacy within
the organization. These initiatives should be on
senior management’s radar and receive special
recognition, in order to motivate employees to be a
part of the effort.
Create focus and accountability. An exclusively
top-down approach can limit the innovation required
to develop effective ways of serving this market.
Companies also need champions within the
organization. Barclays and Citigroup for example,
both have departments focused on micro credit, to
develop opportunities for low-income customers.
Provide decision rights and autonomy. The
separate departments and champions need to be
empowered so that they are not constrained by the
norms and processes that govern corporate activity
in developed markets – such as standard costsaving and revenue goals. These often need to be
adapted to allow for the up-front investments or
longer pay-back horizons required for developing
BOP business models.
32 |
Establish objective metrics. New metrics help to
strengthen accountability and track results.
Companies also need to rethink the metrics they use
to make go / no-go decisions. Return on capital, for
example, is a better metric than the more traditional
“operating margin” when serving high-volume, lowpriced markets. A low-priced brand of detergent in
India, for example, has an advantage over higherpriced brands due to lower investments in product
development and marketing, giving it superior
returns on capital.
Create lean and agile structures. BOP business
units need to minimize costs and stay flexible. They
should avoid duplication and create shared assets
and services rather than loading on large overheads.
Provide access to capabilities and knowledge.
Many organizations create functions that are
responsible for transferring best practices across
business divisions. These “success agents” are
essentially managers who translate learnings from
business models into pointers that other divisions
can use for entering a new market. Some
companies also acquire local companies to
accelerate the process of understanding the BOP
market and developing appropriate brands and
business models.
A market of 3.7 billion people spending US$ 2.3
trillion per annum remains largely excluded from
formal markets. This is a growing population, living in
expanding economies worldwide. While there are
numerous challenges involved in reaching them
effectively as consumers or business partners, they
provide significant opportunities for companies that
find successful approaches.
Chapter 5 – New Alliances:
Priorities for Stakeholders
The innovative approaches described in this report
can form the foundation of new growth opportunities
for companies that are bold enough to experiment.
The right type of engagement can bring about a
transformation in the lives of the BOP by linking
them to formal markets as producers and
consumers. Companies that are first to establish
sustainable, profitable and scalable business models
to include the BOP will establish a competitive
advantage by securing market share and winning
the long-term loyalty of consumers and producers.
Businesses entering these markets will need to
consider how best to engage the next billions; and
how best to approach this new opportunity. More
often than not, other stakeholders play a key role in
enabling or supporting BOP business models. This
might include the hard and soft infrastructure
managed by government; or capacity-building and
organizing of BOP producers and entrepreneurs by
civil society organizations and community organizations.
While companies take the lead in designing and
executing their business models, these other
stakeholders are often an integral part of the process.
Strengthening incentives for business
engagement
What drives companies to seek engagement with
the poor as either producers or consumers? In many
instances changes in government regulation or tax
policies have unlocked opportunities. Lower taxes
on mobile phone airtime and handsets have spurred
company investments in low-income mobile telecom
markets. Rising commodity prices and import tariffs
have prompted many food companies to adopt local
sourcing methods with small farmers.
With the right checks and balances, governments
can strive to encourage companies to adopt
inclusive business models, by fostering publicprivate partnerships and encouraging investments in
cross-industry collaborations. Civil society
organizations can play a vital role in broadening
consumer acceptance and creating BOP awareness
about product benefits.
Facilitating corporate engagement and
establishing models
Companies typically have certain inherent gaps
when operating in the BOP market. At times
businesses do not have the necessary assets and
skills needed to understand, reach, win the trust of
and empower the BOP. To overcome these barriers,
companies can utilize the existing capabilities and
strengths of other stakeholders. Cross-industry and
multistakeholder collaboration can combine
partners’ capacities – bringing companies together
with their peers, as well as NGOs, donors and
governments, to implement business models
effectively at the community level.
Building momentum and accelerating progress
Success breeds success. Proven business models
are often copied by other companies. The success
of Celtel and Celpay in the Democratic Republic of
Congo has prompted other large companies to build
similar enterprises. Successful experiments by
Unilever and Nestlé have encouraged many other
companies to distribute their products through
micro-entrepreneurs. The Grameen Bank is widely
credited for establishing the viability of microfinance
across many markets.
| 33
Other stakeholders, including government,
academia, international organizations, civil society
organizations and the media, can accelerate this
process by highlighting effective models, facilitating
learning and knowledge-sharing, and monitoring and
evaluating results. Raising the visibility of successful
BOP business initiatives creates both learning and
goodwill for companies.
Most of the business models discussed in this report
were neither conventional nor easy to initiate in their
early stages. To unleash the large potential that
exists for both the next billions as well as for
businesses, commitment is required not only from
companies, but also from other organizations –
governments, NGOs, donor agencies, international
organizations, and research institutions and
universities, as well as the general public.
Businesses, civil society organizations and
governments can all benefit by collaborating around
shared priorities. Each stakeholder has a unique set
of capacities and mandates that can often be
34 |
enhanced or extended through effective
collaboration with others. The following table
highlights ways in which the core capacities of
different stakeholders can be leveraged to facilitate
BOP business activity.
Key Actions for Stakeholders
Organizations that are bold enough to experiment
and committed to creating new ways of sourcing,
producing, and delivering products and services to
the next billions will gain a considerable advantage in
the years to come. Over the next decade, even in
the face of global economic challenges, the base of
the pyramid is likely to be a source of continued
economic growth. Companies that start engaging in
this opportunity now can establish a footprint in this
growing market, at the same time, investing in the
communities that will lead and drive its expansion.
The net result will substantially improve livelihoods,
while generating economic growth for companies
and communities alike.
Key Actions for Stakeholders to Develop and Scale BOP Business Models
Stakeholder
group
Primary Role
Actions/Capabilities
Businesses
• Develop and
implement
commercially
sustainable
business models
• Understand the specific needs and constraints of the BOP
• Invest in R&D and new product development for the BOP market
• Assess opportunities to integrate the BOP into value chains
and reduce overall costs
• Invest in capacity building of BOP suppliers and distributors
• Partner or collaborate with others to align complementary
investments, share supply and distribution costs, and
improve the enabling environment
• Design a new organizational model that fosters
experimentation, focuses on core activities, and encourages
collaboration with other players
Government
• Provide key
public
infrastructure and
services
• Define and
implement policy
and regulation
• Create regulations and policies that encourage innovation
and effective collaboration
• Invest in the business enablers to improve market-related
infrastructure and policies, and provide essential services
• Educate and support the BOP – create and empower
consumer forums; conduct public education campaigns;
strengthen capacity of producers and entrepreneurs
• Foster public-private partnerships – convene, align and
mobilize stakeholders around common priorities
Civil Society
Organizations
• Support
communities in
improving
livelihoods
• Advocate for
community needs
• Strengthen the technical, commercial and agricultural
capabilities of the BOP to enable higher quality and
efficiency of production
• Create enabling market infrastructure such as producers’
associations
• Create consumer forums to protect the public interest
• Embrace new non-traditional roles in business partnerships,
for example, by providing a distribution system to efficiently
deliver products and services, as well as education and skills
for the BOP
Donors,
international
organizations,
and research/
academic
organizations
• Define priorities
for stakeholder
action
• Monitor and
assess results
• Share knowledge
on best practices
• Conduct research to identify business and market
development opportunities that would benefit the BOP and
communicate to stakeholders
• Undertake or fund R&D for new product development
targeted at the BOP
• Fund the start-up phase of new business models to enable
experimentation
• Identify public-sector policy and investment priorities to
enable inclusive business models
• Conduct public education campaigns on key products or
concepts
• Collect and share best practices and lessons – monitor,
evaluate and assess impacts of business models on an
ongoing basis
| 35
Terminology
Base of the pyramid (BOP)
The 3.7 billion people populating the lowest income
strata in the world, who earn up to US$ 3,000 per
person per year (in 2002 PPP$), or roughly US$ 8
per person per day (in 2002 PPP$).
Economic multipliers
An effect that occurs when rising incomes spur
increased spending, benefiting local business and
entrepreneurs and catalysing additional economic
benefits.
BOP penalty
The additional costs for basic goods and services
that BOP customers often pay, compared to higherincome customers. For example, water trucked into
slums and sold to households often has a higher
unit price, and lower quality, than water provided to
central neighbourhoods through municipal water
systems.
Next billions
Consumers, producers and entrepreneurs within the
BOP who are currently excluded from formal
markets, but could be engaged profitably by
companies through innovative business models.
Business enablers
Companies providing goods and services which
enable commercial and market-based activity. These
can include financial services, telecom, energy,
transport and logistics products and services,
among others.
Business model
The product or service offering, as well as the
operational processes and financial arrangements,
which comprise a specific private-sector activity or
programme. “Operational processes” include
preparation and delivery of the product to the
customer. “Financial arrangements” include
investments, credit, costs and revenue that lead to
value creation. “Business model innovation” involves
significant changes in two or more components of
the business model to redefine a company’s position
in the market and create superior value.
Civil society organizations
Nongovernmental, not-for-profit organizations whose
activities are dedicated to the public interest in some
way. These can include NGOs, cooperatives, citizen
groups, charitable foundations and international
donor organizations.
Discretionary income
Surplus income left after individual or household
spending on essentials such as food, fuel, housing,
medicines and transport. Also called “disposable
income”, it is often spent on information and
communication services (ICT), higher education,
packaged goods, durables, and lifestyle and
entertainment goods and services.
36 |
Purchasing power parity (PPP)
The value of a given amount of foreign currency,
expressed in terms of the US dollar value of a similar
basket of goods. PPP is based on the theory of
long-term equilibrium exchange rates, which states
that exchange rates of any two countries tend to
equalize their purchasing power in the long term. In
2005 for example, US$ 1 could be exchanged for
7.6 Chinese Yuan. However, the PPP value of US$ 1
in China was 1.8 Yuan, meaning that it would take
1.8 Yuan to purchase goods and services valued at
US$ 1 by the World Bank.
Subsistence level
Income at or under the World Bank’s poverty line of
US$ 1.08 a day (in 1993 PPP terms), which
translates to US$ 1.34 a day in 2002 PPP terms.
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38 |
Appendix 1:
Methodology for Estimating Populations
and Incomes
This appendix discusses calculation methods and
sources used for the following estimates presented
in this report:
1. Size of the BOP population: This was estimated
at 3.7 billion in 2002. Data is derived from 2002
data sources, based on data in two leading
reports (The Next 4 Billion by the World
Resources Institute, 2007[1], and the 2007 World
Development Report by the World Bank[2]) .
2. BOP population sub-groups: Three sub-groups
estimated, based on income – 1 billion in the
lowest segment; 1.6 billion in the middle
segment; 1.1 billion in the top segment.
3. Total BOP income: This was estimated at US$
2.3 trillion in 2008. In this case, 2008 data was
estimated since no comparable, widely
recognized data on aggregate income and
expenditure data of the BOP are available. The
estimate is based on extrapolations from income
statistics of the BOP for 2002.
4. BOP income growth rates: 8% growth rates
calculated in the BOP market (based on 20022008 data) which, if projected forward to 2015,
lead to a total market of US$ 4.0 trillion.
1. Size of the BOP population
The following steps were taken to arrive at an overall
population estimate of the BOP:
1. Starting point: Database of The Economist
Intelligence Unit (EIU) 2002 3, which presents
household population numbers distributed over
nominal household income levels.
2. Establishing upper income threshold for the BOP:
The income threshold of US$ 3,000 per person
per year equivalent to US$ 8 per day (in 2002
PPP) was used, presented in the World Resource
Institute’s 2007 report, The Next 4 Billion. WRI
determined this threshold based on global
income-expenditure surveys.
3. Conversion of PPP income per country/region to
income in nominal US$: US$ 3,000 PPP was
converted to nominal US$ for each country,
based on the PPP to local currency factors from
the International Monetary Fund and exchange
rates from US$ to local currency for 2002. This
was done in order to compare EIU income strata
(presented in nominal US$) to income thresholds
for countries/regions (presented in US$ PPP).
Conversion factors for entire regions such as
Africa were obtained from secondary research.
4. Conversion of WRI individual incomes to
household incomes: Adjustment of income
thresholds from individual to household levels
were conducted to compare EIU income strata
(presented for households) to income data for
countries/regions (presented for individuals).
5. Total BOP population: BOP population from each
country/region were summed to create an
aggregate total. BOP population from each
country/region is calculated by comparing the
adjusted WRI income data to the EIU income
strata database. If income levels were between
pre-specified income strata (e.g. US$ 1,0002,000), the population within the strata was
assumed to have a uniform distribution to
determine the population within that level.
2. BOP population sub-groups
1. Defining three different BOP segments based on
income:
• Lowest BOP segment: The World Bank’s lower
poverty line of US$ 1.08 per person per day at
1993 PPP was adjusted to the 2002 PPP level
of US$ 1.34 per person per day
• Middle BOP segment: The World Bank’s
second poverty line of US$ 2.15 per person
per day at 1993 PPP was adjusted to US$ 2.7
per person per day in 2002 PPP
• Top BOP segment: This was defined using the
maximum income level for the BOP, described
above, which is US$ 8 per person per day at
2002 PPP
2. Population per segment: For each segment,
population estimates were compiled as described
in Section 1 above: after making adjustments for
comparability of EIU and WRI data (individual
incomes to household incomes and PPP$ to
US$), the population data for each country/region
was compiled to estimate the total population for
each income segment.
| 39
3. Total BOP income
The following steps were taken to arrive at an overall
income estimate of the BOP:
1. Starting point income of 2002: Database of the
Economist Intelligence Unit (EIU) 2002[3]. Total
BOP income of each region/country was
computed as the weighted sum of the average
income for each income bracket (e.g. average
income of the bracket US$ 1,000-2,000 is US$
1,500) and the population within that income
bracket. This assumes, however, that the
population within an income bracket is uniformly
distributed, an assumption consistent with Step 5
in Section 1 in interpolating populations for given
cut-offs. This results in an income pool of US$
1.7 trillion in 2002.
2. Computing income growth figures: Average
income growth for the BOP income brackets in
each country were computed from 2002 to 2008.
The resultant growth figure was determined to be
5% nominal rate per annum. Note that this is a
different figure from the 8% historic growth 20022008 (explained below), which also captures the
“wealth effect”, e.g. upward migration of the BOP
to higher income brackets, as explained below.
3. Computing 2008 income figures: The growth of
the aggregated/total income of each segment for
a specific region/country was used to extrapolate
the total BOP income of 2002. Subsequently, this
data was used to calculate today’s (2008) income
pool of US$ 2.3 trillion.
4. BOP income growth rates
To project the potential growth of BOP income over
time, the historic growth rates were calculated
based on 2002-2008 data and then applied forward,
as follows:
1. It was assumed that BOP incomes would migrate
upward only, into higher income brackets, over
time. The potential for downward migration was
not factored into the estimate.
2. The aggregated wealth of the migrators was
determined over time for each region. This was
done by computing the number of people leaving
the BOP income bracket every year using the
EIU’s population statistics from the years 2002 to
2008.
3. The aggregated wealth of migrators was added
to the aggregated wealth of the non-migratory
40 |
BOP population. This was done knowing the
number of migrators every year and assuming
that the average income of these migrators is the
income bracket immediately above the BOP.
4. The resulting growth rate of 8% per year was
used to project the combined wealth of the BOP
population from 2008 to 2
Given that the food and economic crises of 2008
have negatively impacted the livelihoods of the poor
and emerging market growth rates to a degree not
yet fully quantified, the projected continued 8%
growth rate should be considered as a potential
scenario but not a definitive prediction. As of
December 2008, the World Bank was projecting
continued growth in emerging markets for 2009,
albeit at lower levels than previously expected.[33]
While the computed figures match the World Bank’s
figures on an aggregate basis, they do not do so on
a regional basis. This is for the following reasons:
1. PPP adjustments applied by the World Bank for
individual countries were not accessed for this
estimate; instead, the analysis derived these from
secondary sources.
2. Regional population distributions according to
income were used from the EIU database, which
could be different from the World Bank’s
population database.
Lastly, this analysis does not utilize the World Bank’s
latest revised definitions of the poverty line (Source:
Policy Research Working Paper of the World Bank
Development Research Group, August 2008[4]). This
is largely due to lack of information on PPP
adjustments made on a regional basis (which the
World Bank states are a departure from past
methods of calculating populations below the
poverty line). Hence, our population estimates differ
from the latest published World Bank report.
Appendix 2:
Case Study Selection Process
This report features several examples and case
studies of BOP business models. These case
studies represent a wide array of geographic
regions, industry sectors, partners, and business
models. They are intended to illustrate highquality and innovative business approaches.
The case studies were selected through a
rigorous screening process. The report team
conducted research of secondary sources (60
published reports, several organizational
databases and Web research) and primary
sources (company and organizational interviews
and submissions) and created a database of 200
case studies with the following characteristics:
1. Business-led initiatives (or those featuring
strong private-enterprise engagement) that are
proven or intended to be commercially
viable, and do not depend on donor funding
or subsidies for the long term
2. Targeted to BOP consumers, producers and
entrepreneurs
3. Demonstrable social benefits, such as
increased income; creation of new market
opportunities; or provision of access to
needed goods and services
4. Strong potential for scaling across multiple
geographies, based on existing record or
potential for replication
To determine which case studies to include in
the report, the team, which consisted of
employees of the World Economic Forum and
The Boston Consulting Group, applied a second
filter to select cases with the following
characteristics:
1. Innovation in the business model, for
example, a new product design; alternate goto-market strategy; new partnerships
2. Relevance to the themes or ideas discussed
in the report
3. Novelty within the public sphere; initiatives
that had already received heavy international
publicity were de-emphasized in favour of
lesser-known but equally valid examples
4. Partner involvement, illustrating
collaboration between sectors; government
engagement; or other players
As a final step, selected case studies were
evaluated by an impartial team of expert
reviewers from the following institutions:
• The John F. Kennedy School of Government
at Harvard University
• World Resources Institute
• The Schwab Foundation for Social
Entrepreneurship
Case study reviewers were asked to evaluate the
case study selections according to the above
criteria, taking into consideration additional
factors such as regional balance. Feedback and
recommended additions from the expert review
group determined the final selection of cases
incorporated into the report.
While some of the case studies have been
independently evaluated, many have not. The
authors themselves did not independently
evaluate the accuracy of case studies. Future
studies that independently quantify the
commercial and social outcomes of BOP
business models would be helpful. There is
limited availability of such data.
| 41
Appendix 3:
List of Case Studies Cited
Chapter 3 – New Perspectives: Challenging
Deep-seated Beliefs
Chapter
Relevant Theme
Description
Country
Organizations
involved
Affording access
rather than
ownership
Shared-use mobile handsets
Bangladesh
Grameen Phone
Market price information and online commodity
trading
Kenya
(KACE) Kenya Agricultural
Commodity Exchange
Celpay
Congo
Celtel
Banking products and services for small-scale
entrepreneurs
Peru
Mibanco
Strengthening traditional microfinance
mechanisms
Ghana
Barclays
Bridging the gap in
public goods through
private enterprise
Healthcare to reduce infant mortality
Mali
Pésinet
RFID-based ID cards for multiple services
India
A Little World
Scaling out vs.
scaling up
Eye care for the poor
India
Aravind Eye Care
Plumpy’Nut ready-to-eat therapeutic food for
malnourished children
Africa
Nutriset S.A.
Developing local entrepreneurs to improve
distribution
Ethiopia/Kenya
The Coca Cola Company,
Coca-Cola Sabco
Community-owned company sourcing from lowincome artisans
India
Fabindia Ltd
Affordable healthcare products and services for
the most vulnerable
Kenya
Child & Family Wellness
Shops
Community-based monitoring system for water
supply
Philippines
Manila Water
Empowering taxi drivers as entrepreneurs
through training and finance
Indonesia
Rajawali’s Express Taxi
Irrigation products and financing for poor farmers
India
International Development
Enterprises (IDE) India
Development of local manufacturing and
distribution
Bangladesh
Groupe Danone, Grameen
Bank
Establishing an international supply chain for
high-value baskets made by women
Rwanda
Fair Winds Trading Inc.,
Gahaya Links, Macy's Inc.
Distribution model engaging female
entrepreneurs for door-to-door sales
Brazil
Nestlé S.A.
Partnering with local private label suppliers
Brazil
WalMart, Groupe Carrefour
Using lottery shops to sell banking products
Brazil
Caixa Econômica Federal
Leveraging store network and customer loyalty to
build a banking business
Chile
S.A.C.I Falabella
Improved packaging for fresh produce to reduce
post-harvest waste
India
METRO Cash & Carry
International
M-PESA telecom-based cash transfer service
Kenya
Safaricom, Vodafone
Partnering with governments for credible
marketing of low-cost PCs
Vietnam
Intel
Partnering with a trusted brand to gain access to
BOP consumer markets
Brazil
Unibanco, Magazine
Luiza S.A.
“Shakti” programme engaging female
entrepreneurs for door-to-door sales
India
Unilever Plc
Local sourcing from small-holders
India
PepsiCo
Collaborating to bring Internet to the masses
through television
Brazil
Telefonica S.A., Abril
Leveraging IFFCO's distribution network across
rural India to sell telecom services from Airtel
India
IFFCO, Bharti Airtel
Establishing divisions within the company to
focus on the BOP
World
Citigroup, Barclays
Monetizing hidden
assets
Governing through
influence rather than
authority
Chapter 4 – New Approaches: Design
Principles for Success
Reconfigure product
supply chains
Educating through
marketing &
communication
Collaborate to form
non-traditional
partnerships
Unshackle the
organization
42 |
The World Economic Forum is an independent
international organization committed to improving
the state of the world by engaging leaders in
partnerships to shape global, regional and
industry agendas.
Incorporated as a foundation in 1971, and based
in Geneva, Switzerland, the World Economic
Forum is impartial and not-for-profit; it is tied to
no political, partisan or national interests.
(www.weforum.org)